The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products
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NAREIM DIALOGUES SPRING 2018 21 When assessing the health and direction of an investment portfolio, the real estate industry can learn from Wall Street. For years, financial advisors and investors have relied upon services that rate the performance of stocks and mutual funds with a simple star system, condensing mountains of data into an easy-to-digest format. High-level performance ratings help build and manage successful portfolios, prompting investors to have critical conversations and make decisions about the portfolio's direction. What if real estate investors and asset managers had similar tools to help with strategic moves? Technology is enabling the brain trusts of real estate asset management to get a high-level view of a portfolio with star ratings based on key performance indicators (KPIs). Metrics like loan-to-value, NOI variance, occupancy, income yield, and other KPIs can be used to "score" an asset, according to a firm's own benchmarking metrics and standards. Three stars. Four stars. Five stars. The key is to allow an asset manager to formulate how the star ratings are determined, based on whatever metrics are appropriate for the properties they manage. Once rated, it's possible to understand how a property and or portfolio is performing, at a glance. The methodology is changing the higher conversation. STAR RATING IS THE NEXT GENERATION OF METRICS MANAGEMENT Basing decisions on a rating has become the norm in today's review-centric world. Star ratings create conversations about what's behind the glitter. A good star rating twinkles success, while a bad one suggests a possible black hole. In the consumer world, ratings give the user a fast assessment of a business, event, product, or feature. Of course, consumer ratings are often subjective, reflecting the experience of the person who is doing the rating. Bad ratings can lead to countless hours of adjustments at corporate levels to improve ratings, whether fixing a problem or improving service, without fully knowing what will drive the rating up or down. In real estate, asset managers have a similar task of assessing the health of a property or portfolio. However, real estate has an important difference: KPIs provide hard, quantitative measures. Over the years, software has helped investment managers to partner with third-party property managers, joint venture partners, and others on reporting and collecting this data. While this represents a big improvement on the manual, paper-based reporting of previous years, the asset manager must still interpret the results before making the next strategic move. In many cases, the manager is dependent on others to gather the data and crunch the numbers before being able to see the information, thus slowing the process. FILLING A VOID FOR ASSET MANAGERS – INTERNAL STANDARDS AND METRIC BENCHMARKING The industry has long been challenged to assess property performance quickly and conveniently. Originally, it was a challenge to simply get the raw results. Data aggregation solutions helped gather and serve up the data in meaningful ways, but a holistic view of a property's performance required some connecting-the-dots. Now, imagine an asset management system that can assign a simple star rating to a property by calculating the mounds of data, giving asset managers early insight into where potential problems exist, and helping ensure the investment's strategy stays on target. Stakeholders can quickly identify underperforming properties, then drill into the details that allow troubleshooting and determination of where the issues lie. Once a score is determined, investors and asset managers can have meaningful conversations about how to adjust the management strategy. The substance of the conversation is not about how the metrics are performing individually, but what they mean toward the view from 15,000 feet. " The industry has long been challenged to assess property performance quickly and conveniently." ©iStock.com/georgeclerk